Meaning – The auditor is appointed to verify the accounts of an organisation. After verifying the accounts the auditor gives a brief description of the work done by him, which is signed by him. This description is known as the audit report.
Importance of Audit Report
(1) Investor – It is human nature that while making an investment the investor wants maximum safety and return for his investment. The audit report helps in increasing the confidence of the investors in the organisation and it on the basis of the audit report only that the investors decide to invest in an organisation.
(2) Shareholders – Shareholders are the actual owners of a company, but they are usually very far from the place of business. They are large in member also as a result of which they cannot directly take part in the management of the company. Therefore the company is managed by a group of representatives selected by the shareholders known as the Board of Directors. In this way, there is a separation of ownership and management in a company. Therefore the correct information about the work done by directors is available to the shareholders from the audit report only. The audit report gives the shareholders information about the completeness of the ledger and accounts, their accuracy and their adherence to the correct principles. Information about the propriety of the items disclosed in the balance sheet and the profit or loss as disclosed by the profit and loss account can be obtained from the audit report. The rights of the shareholders are safeguarded by the audit report. The report also discloses the honesty and capability of the Directors. Therefore it is said that the audit report is an important document for the shareholders. Keeping the importance of the audit report in mind the Companies Act has, made it mandatory for the companies to get their accounts audited.
(3) Directors – It is possible for the directors of a company to fore-see all the activities of the company themselves. The main job of the directors is to formulate the policies of the company, on the basis of which work is done, by the employees. In such a situation the directors also want to know the extent to which the employees have done their work according to the policies of the company and their level of honesty and commitment towards their job. Such information can be obtained by them from the audit report.
(4) Creditors – The creditors of any organisation are always eager to find out about the financial position of the company? Whether their money is safe or not? Therefore the creditors rely on the audit report to find out about the financial situation of the organisation/company.
(5) Government – Business and government have a direct relationship. The growth of business, industry and finance plays an important role in the growth of the country. Erosion in the capital of the country, embezzlement of capital, disincouragement to investments are such issues for which the participation the government is essential. The government also invests its funds in government companies. The government also give loans and financial assistance to other businesses and industries. Therefore the government also wants to know whether its money is safe or not. Such information can be obtained from the audit report.
(6) Taxation Officer – Various officers such as income tax officers, sales tax officers, excise officers also rely on the audited accounts and take a decision on the basis of the report without doing much verification. This helps them in increasing the amount of tax. Such tax is an important source of revenue for the government, therefore the audit report is also very important for the government.